Economic Perspectives 14 (April 2017) – Meaning of Free Trade

The natural condition of international commerce is unilateral free trade

[I acknowledge the inspirational work of, respectively, Professors Don Boudreaux and Patrick Barron in preparing this instalment of EPs.]

Preface

In the above title, the words “international” (obviously implying ‘more than one’) and “unilateral” (meaning ‘one-sided’), may appear to be self-contradictory. But, as this article explains, (i) a policy of opening unrestricted trading pathways must begin at home; and (ii) others may see the benefits and follow suit, but that is not a precondition. Coercion is neither required nor warranted.

The problem

My readers are probably feeling overdosed on South African economics, but during my visit in February this year I read a report in the Johannesburg daily paper, TheStar, that merits a brief essay because of the growing relevance of its subject matter in a far wider context

At a time when intelligent governments should be proclaiming the immense benefits of unilateral free trade, the armies of protectionists are out in force, desperately brandishing the pseudo-patriotic arguments that favour trade restrictions and obstacles, such as imposing tariffs (on imports) and subsidies (for exporters).

The press article that caught my attention described special pleading to the country’s Trade & Industry Minister by the South African Poultry Association, demanding that government resources be allocated to the defence of the country’s chicken industry because of the impact of cheap chicken imports from Brazil, the US and Europe. The appeal adds, with typically emotive force: “If this protection does not happen, South Africa will have no chicken industry by the end of this year.”

Representatives of the poultry industry are therefore urging the South African government to intervene as a matter of the utmost urgency “to stop the crisis”. This is followed by the standard protectionist refrain: “cheap chicken imports have led to thousands of job losses in South Africa. Government must ensure that anti-dumping measures are fully implemented to prevent cheap chicken imports from coming into the country.”

there you have it in a nutshell

Well,there you have it, in a nutshell!

It matters not whether the particular issue is importing chickens or steel. Protectionist arguments on either of these can be (and must be) rebutted by rational consideration. Let’s express the fundamental points as plainly as possible:

Point one: The protectionist lobby is, in effect, urging the government to force its citizens to pay higher prices so that domestic poultry producers are able to maintain or inflate their current revenues.

[It is, of course, necessary to assume in this context that (i) the lower prices charged by Brazil, et al, do not mask the sale of chickens infected with salmonella bacteria, a matter on which government has a legitimate role, and (ii) that the consuming public find the imported chickens sufficiently tasty and nutritious to justify their purchase as compared with the domestically reared fowl: a matter of free market choice.

Consumers may reasonably have qualms about the conditions in which chickens are reared in the exporting country, but any ethical and moral considerations governing purchasing choices are, in the first instance, matters for individual, not governmental, determination – subject only to the humane principle that needless animal suffering, like human suffering, is not to be indulged in a community with civilised values. It is arguably within the remit of government to take steps to prohibit the manifestly deliberate torture of animals.]

Point two: Protectionists claim that producers of foreign-raised chickens are subsidised by their own governments. Good! This can only mean that (in this instance) the South African public are receiving the gift of lower-priced poultry from foreign producers. Is it truly the role of government to stop South African consumers from accepting this gift? And thereby make them correspondingly poorer?

Point three: Protectionists warn that if South Africa fails to retaliate against artificially low-priced chickens imported from abroad, these overseas producers will bankrupt the entire domestic industry and replace the home country’s monopoly (which they, irrationally, seek to support) with a foreign monopoly (which they, equally irrationally, abhor). The truth, which protectionists conveniently miss, is that poultry is farmed in, and exported from, dozens of countries worldwide – and there is therefore no possible risk of nurturing a foreign-owned monopoly. With free trade and a sound currency, importers will always seek the best products at the lowest prices – irrespective of where located.

Point four: Advocates for protection, no doubt unwittingly, view the subject of trade economics through an upside-down prism. It is the function of consumers to consume – not to serve producers. The raison d’être of production, the justification for its very existence, is to serve consumers. The fact that consumers, in exercising their free choice, are spending their money in ways that do not please domestic poultry farmers, does not justify the demand of their lobbyists that government should intervene to end such ‘perverse’ spending preferences – using the full panoply of linguistic tricks, the more emotive the better: “protecting our workers”; “we need a level playing field”; “let’s play by the same rules”, “unfairness”, etc.

Conclusions:

(i) Forget the concepts of “multilateral” and even “bilateral” trade agreements. These imply that government has a role in “negotiating” on behalf of individuals and businesses perfectly capable of reaching their own agreements. Only “unilateral” free trade is optimal. It needs to be “declared” – not “negotiated”!

(ii) Just look at the dog’s dinner that post-Brexit negotiation has become – “access to the single market”; “free movement of people too”; “World Trade Organisation (WTO) tariff rules” – its an endless, nightmarish, bureaucratic catalogue of inaction!

(iii) Consider the protracted timescale that prolongs these issues. Having a government minister to “do” new trade deals around the globe just makes matters worse – imagine having to waste your time negotiating with characters like Michel Barnier and his pompous ilk, who have raised prevarication to an art form!

(iv) It is all based on mythology anyway! The myth is that governments (and their countries) trade. They don’t! Ever! Only people, representing real businesses, trade! ALL THEY WANT FROM GOVERNMENT IS TO ALLOW THEM TO GET ON WITH IT!